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The theory of taxation

The theory of taxation - so on o Income(the flow of money...

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The Theory of Taxation The benefits-received approach Those who benefit from government spending pay the tax This is difficult because those that have a lot of money do not use welfare, and those that need it don’t have the ability to pay Example: buying gasoline pay for road maintenance Disadvantages: o Who receives the benefits? E.g.- Highways appreciated by commuters, residential areas, consumers o How much are intangible benefits worth? E.g.- Welfare easier to decide but those receiving welfare are worse off o Money vs. Enjoyment Necessities like welfare receiving money grant Enjoyments like driving and flying (you don’t have to drive or fly) Often very effective (with alcohol and gasoline) But sometimes difficult or illogical (such as with welfare) The ability-to-pay approach Tax individuals on their ability to pay taxes Those with a greater ability to pay should pay more in taxes How is it determined? Problem o Wealth (includes real estate, stock, bonds, paintings, bank accounts, and
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Unformatted text preview: so on) o Income (the flow of money given to an individual in a given year) o Expenditure (the more money that one spends, the more one should be able to pay taxes) • Individual spending can be related to standard of living, and a higher standard of living represents a greater ability to pay taxes • In Canada all three approaches of ability-to-pay are used for taxation purposes The progressive approach • The more income you earn the more money you have to pay • Taxes increases for those who can afford to pay it • Less burden on families who earn less income • Intended to charge individuals the same amount of taxes in regards to their incomes • Prevents the rich form getting richer or the poor from getting poorer • Example: Family Jones has two working parents. Mr. Jones earns $20,000 a year and therefore pays 10% income tax. Mrs. Jones earns $50,000 per year and therefore pays 20% income tax....
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